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Home loans may not be cheaper

Banks may not pass the benefit of convertibility to the consumers

Apnaloan.com Research Bureau

10 Aug 2007

MONETARY POLICY 2007-08 TOWARDS CONVERTIBILITY

Bankers may not pass on benefit of lower risk weighting

The RBI has reduced the risk weightage on residential housing loans up to Rs 20 lakh to 50 per cent from the existing 75 per cent.

However, home loan borrowers may not see any relief since bankers are not sure about whether they will pass on this benefit to customers or not.

Lending rates are a function of cost of funds and return on equity. Risk weight is one component of return on equity. The reduction in the risk weight will save about Rs 2,100 crore of capital for the entire banking system. This benefit could be passed on to the customer."

Sangeet Shukla, chief general manager, personal banking, State Bank of India said, "Individual banks will have to take a decision. Of late, the interest rate hikes have been substantial. But the entire cost has not been passed on to the customers. Hence, we will have to do some number-crunching before we take a decision."

M V Nair, chairman and managing director, Union Bank of India, said, "Despite the repeated hike in interest rates and prime lending rates, we did not hike rates on home loans up to Rs 20 lakh. Hence, we see no case for any further reduction in rates."

"There has been wide representation from the middle-class on the negative impact the recent interest rate hikes have had on their monthly household budget. Keeping that in mind, we decided to reduce the risk weight on home loans up to Rs 20 lakh. The RBI has also asked banks to pass this benefit to customers," said Y V Reddy, governor, Reserve Bank of India. This, however, is a temporary measure and will be reviewed after one year.